Suppose the Nominal Interest Rate Is 4 Percent Annually, and You

question 80

Multiple Choice

Suppose the nominal interest rate is 4 percent annually, and you deposit $1,000. Inflation in the economy throughout the year is 5 percent. At the end of the year, you have earned:

• A) a real rate of return of 1 percent.
• B) an increase in your purchasing power.
• C) a nominal increase in your savings of $40.
• D) All of these statements are true.